Harley’s Focus On Electric Vehicles’ Market Will Drive Its Future Growth

Harley-Davidson (NYSE: HOG) is a manufacturer of heavyweight motorcycles and commands a 50% share in the heavyweight motorcycle market in the US with a strong presence in Europe and Japan. The stock has fallen around 19% since the start of the year, largely because of a prevalent weakness in the US motorcycle market. Further, the company has downgraded its profit outlook for FY’18. HOG now expects its operating margin to range between 9-10% in comparison to its initial guidance of 9.5%-10.%. The lower guidance reflects the negative impact of the imposed trade tariffs in the US and Europe, as the company expects an additional $45-$55 million cost headwind for the year owing to these tariffs.

That said, the company is now focusing on the electric vehicles’ market in order to sustain its operations and deliver a long-term value to its investors. Our key expectations for the company’s full-year 2018 results are highlighted in our interactive dashboard analysis – HOG Price Estimation. We have a price estimate of $44 per share for the company. You can make changes to our assumptions to arrive at your own fair price estimate for the company.

In order to counter the decline in sales due to the ongoing tariff war, Harley-Davidson has initiated the production of its motorcycles in the international markets, rather than exporting them from the US. This will allow the company to control its costs and sell its bikes at competitive prices in the international markets. In this quest, the company is establishing a new plant in Thailand to tap into the Asian markets. While this plant will take some time to ramp up its production, it is likely to boost the company’s top-line growth in the coming years.

Further, Harley-Davidson is also tapping into the electric vehicles (EV) market, given the growing demand for greener and environmental-friendly vehicles. The company’s announcement of a R&D facility in California, earlier this month, has boosted investor confidence in the stock. The upcoming facility will focus on the development of electric vehicles, including batteries, performance electronics and design, and will become operational by late 2018. Additionally, the company plans to cover the lighter EV motorcycle market and has lined up a utility scooter, a dirt bike, and an electric-assist bicycle in its EV portfolio. Harley-Davidson plans to invest $150-$180 million on the development of electric vehicles. By adding electric cycles and scooters in its lineup, the company is moving away from its hardcore image of the past. We expect this move to drive its value in the long term.

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